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Custodian picks up the smaller fry

Custodian REIT is concentrating on acquiring smaller regional commercial property assets, where the competition is less fierce
November 27, 2015

Commercial real estate landlord Custodian REIT (CREI) is a real estate investment trust with a difference in that it chases the smaller assets that normally slip under the radar of the bigger players. Working predominantly in the regional property market, Custodian has been picking up assets less affected by demand pressures. So while there was yield compression of 93 basis points in the broader property market over the past three years, Custodian’s assets have witnessed only 30 basis points of compression over the same period.

IC TIP: Buy at 106p

In future, rental growth will pick up the baton, according to investment manager Richard Shepherd-Cross, who points out that the Investment Property Forum is forecasting average rental growth of 2.45 per cent a year for the next four years. This supports Custodian's strategic focus on income, and with a progressive dividend policy, it now expects to achieve its target of paying 6.25p per share in dividends for the year to March 2016 - a yield on the current share price of nearly 6 per cent.

A total of 14 acquisitions were made in the first half, with total investment of £23.4m funded by a £14.3m placing and a £20m loan. And after the half-year, Custodian announced plans to raise a further £50m through a share placing, with an option to increase this to £75m.

CUSTODIAN REIT (CREI)
ORD PRICE:106pMARKET VALUE:£205m
TOUCH:104.5-106p12-MONTH HIGH:110pLOW: 104p
DIVIDEND YIELD:5.4%DEVELOPMENT PROPERTIES:nil
PREMIUM TO NAV:3%
INVESTMENT PROPERTIES:£233mNET DEBT:16%

Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201499.63.32.52.5
20151037.94.33
% change+3+143+72+20

Ex-div: 26 Nov

Payment: 31 Dec